(PUB) Investing 2016

9

January 2016

Morningstar FundInvestor

Small-Cap Downside Capture

Morningstar Category

Morningstar Analyst Rating

Total Assets ($ Mil)

3-Yr Downside Capture Ratio*

5-Yr Downside Capture Ratio*

10-Yr Downside Capture Ratio*

Name

Ticker

Conestoga Small Cap

CCASX

Small Growth

637

85.51

93.96

96.52

•

Mairs & Power Small Cap

MSCFX

Small Blend

191

93.34

•

Neuberger Berman Genesis

NBGNX

Small Growth

10,245

97.04

92.56

89.48

´

Perkins Small Cap Value

JSCVX

Small Value

1,434

93.50

105.38

90.58

•

T. Rowe Price Div Sm Cap Growth PRDSX

Small Growth

2,068

81.12

110.97

111.63

•

T. Rowe Price Small-Cap Value

PRSVX

Small Blend

7,773

104.36

109.83

107.55

´

Wasatch Core Growth

WGROX

Small Growth

1,222

87.76

84.46

110.00

•

Vanguard Small-Cap Index

VSMAX

Small Blend

56,001

106.95

124.31

123.56

Œ

*Ratios calculated vs. S&P 500. Data as of November 2015.

rough patches, including the third quarters of 2014 and 2015 , when strong stock-picking, rather than a large cash stake, drove results. The fund’s strong long-term risk-adjusted record within the small- value category dates back to its 1987 founding under Bob Perkins, who has stepped back but remains involved. The 2013 departure of comanager Todd Perk- ins was unexpected, but comanager Justin Tugman remained onboard and was joined by finan- cials analyst Tom Reynolds. T. Rowe Price Diversified Small Cap Growth PRDSX This fund has racked up an excellent record since Sudhir Nanda took the helm in October 2006 , beating most of its small-growth peers on both a total- return and risk-adjusted basis. The fund has been a consistent performer, too, landing in the category’s top half in each calendar year during Nanda’s tenure. Nanda relies heavily on quantitative stock-picking models but has kept a lid on volatility by relying less on momentum than many quants do, instead focus- ing on valuation and earnings quality. The portfolio holds about 300 stocks, with positions capped at 1% of assets. The fund’s quant models don’t take com- panies’ debt into account, so the portfolio’s debt/ capital ratio is sometimes above the category norm, and the fund could be hurt if interest rates rise. However, Nanda’s disciplined strategy and record of strong stock selection, coupled with the fund’s well below-average fees, bode well. T. Rowe Price Small-Cap Value PRSVX This fund has generated good long-term risk-adjusted performance with a portfolio diversified across

more than 300 names—which not only minimizes stock-specific risk but has also kept a large asset base manageable. David Wagner, who had served as associate portfolio manager since 2005 , took over for longtime manager Preston Athey in July 2014 after working alongside him for nine months to ensure a smooth transition. He follows the same risk-conscious strategy, buying stocks trading at low absolute or relative valuations and hanging on as their gains com- pound. This buy-and-hold approach pushes up the fund’s valuation metrics, nudging it into the small- blend category. However, management avoids holding too many stocks that graduate to mid-caps. Wasatch Core Growth WGROX Wasatch is known for building compact portfolios of stocks with defensible economic advantages and consistent economic returns across market cycles, and this fund has delivered competitive results within the small-growth category with generally low Morningstar Risk ratings. Stock-picking drives portfolio construc- tion, so assets can cluster in sectors where managers J.B. Taylor and Paul Lambert find opportunities: The fund has large helpings of industrial and financial stocks relative to its small-growth peers and a sig- nificant underweighting in health care. Its average valuation measures are generally in line with the category average, but its quality metrics—such as re- turn on assets--are usually stronger than peers’, and risk-adjusted performance is its selling point. The fund hasn’t always outperformed in down markets— it was out of step in 2008 —but it was well in the black in 2011 ’s tough market. K Contact Laura Lallos at laura.lallos@morningstar.com